Finance

U.S. Commerce Secretary Gina Raimondo spoke with CNBC’s Eunice Yoon in an exclusive interview Wednesday.
“My message was there’s a desire to do business, but we need predictability, due process and a level playing field,” Raimondo said.
“They said that China wants to embrace American business,” she told CNBC. “So now, let’s back that up with concrete actions to create a more predictable business environment.

US Commerce Secretary Gina Raimondo (C) talks to US Ambassador to China Nick Burns (L) as they head to a meeting with Chinese Premier Li Qiang at the Great Hall of the People in Beijing on August 29, 2023.
Andy Wong | Afp | Getty Images

BEIJING — U.S. Commerce Secretary Gina Raimondo has called on China to improve the predictability of the business environment for American companies in the country.
“My message was there’s a desire to do business, but we need predictability, due process and a level playing field,” Raimondo said in an exclusive interview with CNBC’s Eunice Yoon on Wednesday.

“There’s an appetite certainly for U.S. business to continue to do business in China,” she said, adding however that “It’s an unlevel playing field for U.S. business. It’s unpredictable.”
Raimondo was in China this week and met government officials in both Beijing and Shanghai. She is the first U.S. Commerce Secretary to travel to the country in five years — a period that’s seen the bilateral relationship grow increasingly tense.
Foreign companies in China have long complained about market access challenges including forced tech transfers and preferential treatment for local companies, especially state-owned enterprises.

Those issues and China’s longstanding trade surplus with the U.S. contributed to the Trump administration’s decision to levy tariffs on China in 2018, followed by restricting certain Chinese companies’ ability to buy from U.S. suppliers.
Increasingly, the U.S. government has emphasized the goal is to ensure national security.

Raimondo held firm on that point in her remarks.
“We just cannot allow sophisticated emerging technology from America to advance China’s military,” she said. “I’ll do whatever it takes to meet that mission.”
The U.S. Department of Commerce’s Bureau of Industry and Security last year announced export controls to limit Chinese access to advanced semiconductors. This month, the Biden administration revealed a proposal to restrict U.S. investment into high-end Chinese tech.

Calls for more action

Beijing also has national security in mind.
The Chinese government this year updated its counter-espionage law, alongside a few high-profile raids on international consulting firms — developments that rattled foreign businesses.

They said that China wants to embrace American business. So now, let’s back that up with concrete actions to create a more predictable business environment.

Gina Raimondo
U.S. Commerce Secretary

The updated law is of “great concern” to U.S. companies, Raimondo said.
She said clarifying the new parts of the counter-espionage law would a helpful, concrete action Beijing could take.
“Actions speak louder than words,” Raimondo said. “In all of my meetings, speaking with the premier and the vice premier, they were gracious, they were open.”
“They said that China wants to embrace American business,” she told CNBC. “So now, let’s back that up with concrete actions to create a more predictable business environment. To, as you say, grow confidence.”
Foreign business organizations have noted improvements over the years in China’s protection of intellectual property. The country is also trying to improve its court system.
Recent high-level Chinese government statements have included general calls to create a more predictable environment, and encourage foreign investment.

Read more about China from CNBC Pro

“China and the U.S. agree to continue to maintain communication, and support practical cooperation between businesses from both countries,” according to a CNBC translation of the Chinese-language readout of Raimondo’s meeting with Vice Premier He Lifeng. He is also the Chinese leader on China-U.S. trade and economic affairs.
This week, the U.S. and China agreed to establish regular communication channels on commerce, export controls and protecting trade secrets.

China will continue to believe that the U.S. is determined to block its rise, and the U.S. will continue to believe that China is determined to usurp the post-war global order.

Stephen Olson
Hinrich Foundation

Stephen Olson, senior research fellow at the Hinrich Foundation, cautioned against expecting real breakthroughs from increased communication alone.
“The Raimondo trip highlights the fundamental contradiction at the heart of the Biden administration’s China strategy,” he said. “It is putting a stranglehold on China’s access to critical technologies while at the same seeking to maintain if not expand trade and investment opportunities with China in those areas that suit U.S. interests.”
“China will continue to believe that the U.S. is determined to block its rise, and the U.S. will continue to believe that China is determined to usurp the post-war global order.”

A Boeing deal?

Raimondo wrapped up her China trip with a visit with Boeing executives at a company facility in Shanghai.
The U.S. aircraft giant is getting ready to resume 737 Max deliveries to China after a four-year hiatus, Bloomberg reported earlier this month, citing sources familiar with the situation.

When asked about a potential Boeing deal, Raimondo deferred to the company, but called it “an example of an action.”
“I know that the Chinese government has purchased these planes and we’re looking for them to take possession. I hope that that happens.”
Boeing did not immediately respond to a CNBC request for comment. More

U.S. Commerce Secretary Gina Raimondo has left Beijing with a few deliverables: plans for formal discussions on export controls and tourism.
In her two days in Beijing, Raimondo met with Premier Li Qiang, Vice Premier He Lifeng, Commerce Minister Wang Wentao and Minister of Culture and Tourism Hu Heping.
“China and the U.S. agree to continue to maintain communication, and support practical cooperation between businesses from both countries,” said the Chinese-language readout of Raimondo’s meeting with Vice Premier He.

U.S. Commerce Secretary Gina Raimondo (L) and Chinese Vice Premier He Lifeng pose for photographs before their meeting at the Great Hall of the People in Beijing on August 29, 2023.
Andy Wong | Afp | Getty Images

BEIJING — U.S. Commerce Secretary Gina Raimondo has left Beijing with a few deliverables: plans for formal discussions on export controls and tourism.
“Now it’s more than just agreements to keep talking. It’s a specific channel to address commercial issues,” Raimondo told reporters late Tuesday as she was leaving the capital city for Shanghai.

“I hope that this becomes a moment where we start to see action.”
In her two days in Beijing, Raimondo met with Premier Li Qiang, Vice Premier He Lifeng, Commerce Minister Wang Wentao and Minister of Culture and Tourism Hu Heping.
Here’s what they agreed to do, according to public announcements:

Establish a commercial issues working group between the commerce departments — meet twice a year at the vice minister level, and once at the minister level. The U.S. will host the first meeting in early 2024.
Launch export control enforcement information exchange — first in-person meeting held at the assistant secretary level at the Ministry of Commerce in Beijing on Tuesday.
Hold the 14th China-U.S. Tourism Leadership in China in the first half of 2024.
Convene experts from both sides for technical discussions about protecting trade secrets during administrative licensing proceedings. 
Informal discussions as frequently as needed between Wang and Raimondo.

“This is a very important visit because we had no active senior commercial dialogue,” U.S. Ambassador to China Nicholas Burns told reporters late Tuesday. He noted that in his first 15 months in China as ambassador, there were no U.S. discussions at a senior level with Chinese officials.

There was “no way to deliver really tough messages, no way to listen and provide some context for why they’re making decisions,” Burns said. “In a very, very challenging relationship intensive diplomacy is critical.”

Raimondo’s visit marks the latest in a series of renewed high-level U.S. official trips to China this summer amid a tense bilateral relationship.
“China and the U.S. agree to continue to maintain communication, and support practical cooperation between businesses from both countries,” according to a CNBC translation of the Chinese-language readout of Raimondo’s meeting with Vice Premier He, who is also the Chinese leader on China-U.S. trade and economic affairs.

We don’t negotiate on matters of national security.

Gina Raimondo
U.S. Commerce Secretary

The brief readout of the meeting also said the Chinese side raised concerns about U.S. tariffs, export controls on China, investment restrictions and other measures.
Raimondo said she “said no” to China’s requests to reduce export controls and “retract” the executive order on outbound investment screening.
“We don’t negotiate on matters of national security,” she said.
Earlier this month, U.S. President Joe Biden signed an executive order aimed at restricting U.S. investments into Chinese semiconductor, quantum computing and artificial intelligence companies over national security concerns. Treasury Secretary Janet Yellen is mostly responsible for determining the details. 

Forthcoming implementation remains in a period of public comment.
In the fall of 2022, the U.S. Department of Commerce’s Bureau of Industry and Security announced new export controls that limited the ability of Chinese businesses to buy certain advanced semiconductors from American suppliers.
This summer, China’s Ministry of Commerce announced its own export controls to restrict Chinese exports of two metals — gallium and germanium that are used in semiconductor manufacturing.

An unstable economic relationship between China and the United States is bad for the world.

Gina Raimondo
U.S. Commerce Secretary

Raimondo noted that about 1% of U.S.-China trade is subject to export controls.
“An unstable economic relationship between China and the United States is bad for the world,” she said.
However, she said her conversations with more than 100 businesses around this trip found that doing business in China was getting harder with greater uncertainty surrounding new laws.
“Increasingly I hear from businesses China is uninvestible because it’s become too risky,” she said.
China has doubled down on efforts to promote investment in China this year, and rolled out initiatives to boost such inflows.
“Any one of those could be addressed as a way to show action,” Raimondo told reporters.
In Shanghai, her itinerary includes a meeting with the local party secretary and Shanghai Disney.
The theme park saw record high revenue, operating income and margin during the latest quarter, the Disney said in an earnings call.
— CNBC’s Eunice Yoon contributed to this report. More

The US Court of Appeals for the Federal Circuit in Washington, D.C., US, on Wednesday, Aug. 9, 2022.
Al Drago | Bloomberg | Getty Images

Well, now the SEC is in a real pickle. 
The U.S. Court of Appeals for the D.C. Circuit sided with Grayscale in a lawsuit against the SEC, greatly improving the chances that a bitcoin exchange traded fund will be approved. The SEC had earlier denied Grayscale’s application to convert its Grayscale Bitcoin Trust to an ETF. 

The problem for the SEC is that the court has squarely rejected the very basis on which the SEC has been denying a spot bitcoin ETF for the past several years. 
The SEC has said it can’t approve a spot bitcoin ETF because there isn’t a regulated crypto market of sufficient size to prevent manipulation. 
But the court called out the SEC over its prior approval of a futures-based bitcoin product.  The court said, in essence, Hey, you approved a futures-based bitcoin product. The futures and the spot market are “like” products. If you approve one, you have to approve the other. 
“Because the spot and futures markets for bitcoin are highly related, it stands to reason that manipulation in either market will affect the price of bitcoin futures,” the court said. 
“The denial of Grayscale’s proposal was arbitrary and capricious because the Commission failed to explain its different treatment of similar products,” the appeals court said. 

The tragedy of this ruling is that it does nothing to alleviate the concern over possible manipulation, which has not gone away. The court simply said that the SEC has erred in approving one ETF (bitcoin futures) and not approving another (spot bitcoin). 
Where to from here 
What’s next?  A lot depends on whether SEC Chair Gary Gensler wants to fold or fight to the end. 
The SEC has several choices to make. 
The first is whether it wants to appeal the case, in which case the order would be stayed until there is a decision on the appeal. The regulator has 45 days to make that decision. An appeal is possible, but the harsh tone of the judicial ruling certainly makes it more difficult for the SEC to appeal. 
Depending on the decision to appeal, there are several choices after that. 
1) Approve all or some of the nine applications for a spot bitcoin ETF as soon as possible. The SEC could go along with the court ruling and issue an order allowing the exchange on which the Grayscale ETF would list (NYSE Arca) to go ahead and list the Grayscale fund, or approve other funds that have applied. 
Applicants for a spot bitcoin ETF

Grayscale Bitcoin Trust
Ark/21 Shares Bitcoin Trust
Bitwise Bitcoin ETF Trust
BlackRock Bitcoin ETF Trust
VanEck Bitcoin Trust
WisdomTree Bitcoin Trust
Valkyrie Bitcoin Fund
Invesco Galaxy Bitcoin ETF
Fidelity Wise Origin Bitcoin Trust

 2) Delay as long as the law allows.  The first of the applicants to file was Ark, which published in the Federal Register on May 15.  The SEC has a maximum time of 240 days to approve or deny those applications, meaning the first deadline would be January 10, 2024. 
3) Come up with a new rationale why the application should not be approved and dare Grayscale to sue again. The SEC can no longer use the argument that there is not a market of sufficient size to prevent manipulation, but it could come up with other arguments. 
Like what?  That’s not clear. 
There’s one final possibility: the SEC could just kill the bitcoin futures ETF.  That is theoretically possible, but unlikely, considering the SEC recently approved (leveraged) bitcoin futures. 
Who’s first in line? 
Even assuming a spot bitcoin ETF is coming, it doesn’t mean Grayscale can necessarily jump the line. It’s possible the SEC will approve ARK first, or all of them at the same time. 
I wonder if the SEC is regretting that decision to approve bitcoin futures. 
Note:  Matt Hougan Chief Investment, Officer for Bitwise Asset Management, one of the applicants for a spot bitcoin ETF, will appear on ETF Edge on Halftime Report Wednesday.  For ETF Edge at 2:00 PM ET, Hougan will be joined by Craig Salm, Grayscale’s chief legal officer, and Jeremy I. Senderowicz, an attorney with VedderPrice who has been representing ETFs for close to 20 years. More

The Hewlett-Packard Co. logo is displayed on the window of an electronics store in New York.
Ramin Talaie | Bloomberg | Getty Images

Check out the companies making headlines in after-hours trading.
Box — The cloud stock fell 7% after hours on a mixed second-quarter report. Box’s revenue came in at $261 million, in line with Wall Street’s estimates, according to Refinitiv. However, the company posted adjusted earnings of 36 cents per share, beating analysts’ estimates by 1 cent. Box also posted weak guidance on both lines for the current quarter and for full-year revenue, according to FactSet.

Ambarella — The semiconductor maker slid nearly 14% as soft current-quarter guidance overshadowed a strong report. Though Ambarella beat expectations on both lines in the second quarter, the company said to expect $50 million in third-quarter revenue while analysts surveyed by Refinitiv anticipated $67.6 million.
HP — The product maker dropped 5.6% in extended trading after revenue for the fiscal third quarter underwhelmed Wall Street. HP posted $13.2 billion in revenue, missing the estimate from analysts polled by Refinitiv of $13.37 billion. Earnings per share came in line with expectations at 86 cents, excluding items.
Hewlett Packard Enterprise — The technology stock retreated about 1%. The company narrowly beat expectations on both lines in its fiscal third quarter. Hewlett Packard Enterprise posted adjusted earnings of 49 cents per share on revenue of $7 billion, while analysts polled by Refinitiv anticipated earnings of 47 cents per share and revenue of $6.99 billion.
PVH — The Calvin Klein parent climbed 2.6% on the heels of a strong financial report. PVH reported $1.98 in earnings per share, excluding items, on $2.21 billion in revenue, while analysts surveyed by Refinitiv forecast $1.76 per share and revenue at $2.19 billion. The company also reaffirmed its full-year revenue guidance and raised its outlook for earnings per share for the year. More

A shopper loads televisions into the trunk of a vehicle outside a Best Buy store on Black Friday in San Francisco, Nov. 25, 2022.
David Paul Morris | Bloomberg | Getty Images

Check out the companies making headlines in midday trading.
Best Buy — Shares popped nearly 4% after the retailer’s fiscal second-quarter earnings beat on both the top and bottom lines. Adjusted earnings per share came in at $1.22, versus the $1.06 expected from analysts polled by Refintiv. Revenue was $9.58 billion, topping the consensus estimate of $9.52 billion. However, Best Buy lowered the top end of its revenue outlook for the year.

Big Lots — The discount retailer surged 26.7% after its earnings report came in better than analysts expected. Big Lots lost $3.24 per share, on an adjusted basis, less than the $4.11 forecast by analysts surveyed by FactSet. Revenue exceeded the consensus estimate of $1.1 billion, coming in at $1.14 billion.
Coinbase, Marathon Digital, Riot Platforms — Stocks tied to the cryptocurrency industry soared after a court ruled against the U.S. Securities and Exchange Commission in a lawsuit about spot bitcoin exchange-traded funds. Shares of Coinbase, which is named as a custodial partner in several proposed bitcoin ETFs, jumped 14.9%. Bitcoin mining stocks also rose, with Marathon Digital surging 28.8% and Riot Platforms climbing 17.2%.
3M — Shares gained 1.4% after the company agreed to settle lawsuits regarding potentially defective U.S. military earplugs for $6.01 billion. The deal had grown into the largest mass tort litigation in U.S. history.
Heico — The engine and aircraft parts maker retreated 1.4%. Despite beating expectations for revenue in the quarter, the company said its operating margin fell when compared with the same quarter a year ago.
Nio — The Chinese electric vehicle maker slid 1.2% after posting a wider quarterly loss than anticipated. Industry giant Tesla climbed more than 5.4%.

Nvidia — The artificial intelligence stock rallied 4%, part of a broader ascent among technology stocks in Tuesday’s session. Morgan Stanley reiterated its overweight rating on the stock, noting its strong earnings report last week can be a positive signal for the AI supply chain.
PDD Holdings — U.S.-listed shares jumped 15.4%. The Chinese e-commerce company beat Wall Street expectations when reporting second-quarter earnings. It noted a positive shift in consumer sentiment during the quarter.
Oracle — Software giant Oracle climbed 3.2% following an upgrade from UBS to buy from neutral. UBS said the stock could have upside ahead due to tailwinds tied to AI.
AT&T, Verizon — The telecommunications giants each added more than 3% on the back of a Citi upgrade to buy. The firm cited stabilization in the wireless environment and said the stocks’ valuations may be over discounting potential costs tied to mitigating lead-covered cables.
Alphabet, General Motors — Google Cloud and General Motors said Tuesday they’re working together to explore AI opportunities across the automaker’s business. Following the announcement, shares of Google Cloud’s parent company Alphabet and General Motors rose 2.7% and 1%, respectively, during midday trading.
Catalent — Catalent jumped 4.7% after the biotech company issued a solid revenue outlook and announced a deal with activist investor Elliott Investment Management. For fiscal 2024, Catalent forecast revenue in the range of $4.30 billion to $4.50 billion, far above the $4.19 billion expected by analysts polled by FactSet. Additionally, Catalent agreed to name four new independent directors to its board, two of whom will be nominated by Elliott. It also agreed to a review of its business and strategy.
Ginkgo Bioworks — The biotechnology company’s stock popped 24% after announcing a five-year cloud and AI partnership with Google Cloud. As part of the deal, Ginkgo Bioworks will work to create new large language models for biology and biosecurity uses. Alphabet shares rose nearly 3%.
Rockwell Automation — The industrial stock gained 2.6% after Wells Fargo upgraded the stock to equal weight from underweight. The Wall Street firm said it’s bullish on Rockwell’s earnings growth potential.
Airbnb — The vacation booking platform climbed 4.8%. Bernstein reiterated its outperform rating and said investors should buy the stock after a recent pullback in share prices.
Palantir Technologies— The software stock surged more than 5%. Bank of America reiterated its buy rating on Palantir, calling the company a “key player” in implementing secure AI despite the recent share pullback.
Splunk — Shares of the software company added 1.1% after Jefferies named the company a top pick in a Tuesday note. Jefferies said Splunk is now in the position to deliver “mid-teens” increases in annual revenue after a management overhaul that began 18 months ago.
Futu Holdings — The Asian wealth management stock popped 9.1% following a double-upgrade to buy from underperform by Bank of America. The Wall Street bank said to expect more growth in overseas markets.
NextEra Energy Partners — The energy stock advanced 4.2% on the back of an upgrade from Raymond James to outperform from market perform. Raymond James said investors should buy the dip on the stock.
— CNBC’s Sarah Min, Samantha Subin, Yun Li, Hakyung Kim, Michelle Fox, Pia Singh and Jesse Pound contributed reporting. More

U.S. regulators on Tuesday unveiled plans to force regional banks to issue debt and bolster their so-called living wills, steps meant to protect the public in the event of more failures.
All American banks with at least $100 billion in assets would be subject to the new requirements, which resemble rules that apply to the world’s biggest banks.
Impacted lenders will have to maintain long-term debt levels equal to 3.5% of average total assets or 6% of risk-weighted assets, whichever is higher, according to a fact sheet released Tuesday.

Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corp. (FDIC), speaks during an Urban Institute panel discussion in Washington, D.C., on Friday, June 3, 2022.
Ting Shen | Bloomberg | Getty Images

U.S. regulators on Tuesday unveiled plans to force regional banks to issue debt and bolster their so-called living wills, steps meant to protect the public in the event of more failures.
American banks with at least $100 billion in assets would be subject to the new requirements, which makes them hold a layer of long-term debt to absorb losses in the event of a government seizure, according to a joint notice from the Treasury Department, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp.

The steps are part of regulators’ response to the regional banking crisis that flared up in March, ultimately claiming three institutions and damaging the earnings power of many others. In July, the agencies released the first salvo of expected changes, a sweeping set of proposals meant to heighten capital requirements and standardize risk models for the industry.
In their latest proposal, impacted lenders will have to maintain long-term debt levels equal to 3.5% of average total assets or 6% of risk-weighted assets, whichever is higher, according to a fact sheet released Tuesday by the FDIC. Banks will be discouraged from holding the debt of other lenders to reduce contagion risk, the regulator said.

Higher funding costs

The requirements will create “moderately higher funding costs” for regional banks, the agencies acknowledged. That could add to the industry’s earnings pressure after all three major ratings agencies have downgraded the credit ratings of some lenders this year.
Still, the industry will have three years to conform to the new rule once enacted, and many banks already hold acceptable forms of debt, according to the regulators. They estimated that regional banks already have roughly 75% of the debt they will ultimately need to hold.
The KBW Regional Banking Index, which has suffered deep losses this year, rose less than 1%.

Indeed, industry observers had expected these latest changes: FDIC Chairman Martin Gruenberg telegraphed his intentions earlier this month in a speech at the Brookings Institution.

Medium is the new big

Broadly, the proposal takes measures that apply to the biggest institutions — known in the industry as global systemically important banks, or GSIBs — down to the level of banks with at least $100 billion in assets. The moves were widely expected after the sudden collapse of Silicon Valley Bank in March jolted customers, regulators and executives, alerting them to emerging risks in the banking system.
That includes steps to raise levels of long-term debt held by banks, removing a loophole that allowed midsized banks to avoid the recognition of declines in bond holdings, and forcing banks to come up with more robust living wills, or resolution plans that would take effect in the event of a failure, Gruenberg said this month.
Regulators would also look at updating their own guidance on monitoring risks including high levels of uninsured deposits, as well as changes to deposit insurance pricing to discourage risky behavior, Gruenberg said in the Aug. 14 speech. The three banks seized by authorities this year all had relatively large amounts of uninsured deposits, which were a key factor in their failures.

What’s next for regionals?

Analysts have focused on the debt requirements because that is the most impactful change for bank shareholders. The point of raising debt levels is so that if regulators need to seize a midsized bank, there is a layer of capital ready to absorb losses before uninsured depositors are threatened, according to Gruenberg.
The move will force some lenders to either issue more corporate bonds or replace existing funding sources with more expensive forms of long-term debt, Morgan Stanley analysts led by Manan Gosalia wrote in a research note Monday.
That will further squeeze margins for midsized banks, which are already under pressure because of rising funding costs. The group could see an annual hit to earnings of as much as 3.5%, according to Gosalia.
There are five banks in particular that may need to raise a total of roughly $12 billion in fresh debt, according to the analysts: Regions, M&T Bank, Citizens Financial, Northern Trust and Fifth Third Bancorp. The banks didn’t immediately respond to requests for comment.

Bank groups complain

Having long-term debt on hand should calm depositors during times of distress and reduces costs to the FDIC’s own Deposit Insurance Fund, Gruenberg said this month. It also improves the chances that a weekend auction of a bank could be done without using extraordinary powers reserved for systemic risks, and gives regulators more options in that scenario, like replacing ownership or breaking up banks to sell them in pieces, he said.
“While many regional banks have some outstanding long-term debt, the new proposal will likely require issuance of new debt,” Gruenberg said. “Since this debt is long-term, it will not be a source of liquidity pressure when problems become apparent. Unlike uninsured depositors, investors in this debt know that they will not be able to run when problems arise.”
Investors in long-term bank debt will have “greater incentive” to monitor risk at lenders, and the publicly traded instruments will “serve as a signal” of the market’s view of risk in these banks, he said.
Regulators are accepting comments on these proposals through the end of November. Trade groups raised howls of protest when regulators released part of their plans in July.

Correction: FDIC Chairman Martin Gruenberg gave a speech in August at the Brookings Institution. An earlier version misstated the month. More

Interrogating a fairy tale is not usually the best use of an investor’s time. But there may be an exception. The internal logic of “Goldilocks and the Three Bears”, and the idea of whether the economy can be “just right” for financial markets, merits some inspection.Earlier this year, the prospect of a seemingly inevitable American recession—the result of rising interest rates—peppered conversations across the financial world. Now, with inflation falling rapidly, economic growth looking strong and the Federal Reserve at least slowing the pace of interest-rate rises, talk is of a “Goldilocks” situation: an economy that is neither too hot (with surging inflation) nor too cold (with unpleasantly high unemployment). As the picture has grown brighter, yields on American government bonds have ticked ever higher. The yield on ten-year Treasuries is now 4.2%, up from 3.8% at the beginning of the year. Real yields, adjusted for inflation expectations, are at their highest since 2009.They are unlikely to return to earth any time soon. On top of buoyant growth figures—one closely followed estimate suggests that the American economy may be growing at nearly 6%—underlying supply and demand also point upwards. The government will run a budget deficit of around 6% of gdp this year, a figure that is expected to grow over the coming years. Meanwhile, the Fed has allowed around $765bn of Treasuries on its balance-sheet to mature without replacement since last summer.Such good economic news has less rosy implications for the financial outlook than might be expected. Indeed, various markets are already being squeezed by rising yields in a manner that threatens financial stability. Sky-high bond yields mean considerable financial distress is baked in, even if it is not yet visible. And the threat is growing with every strong piece of economic data. Take commercial property. American office-vacancy rates reached 16.4% in the middle of the year, according to Colliers, an estate agency, above the previous record set after the global financial crisis of 2007-09. The combination of entrenched work-from-home habits and rising interest rates has been brutal for owners of commercial property. Capital Economics, a research firm, expects another 15% decline in prices by the end of 2024, and for the west coast to be hit particularly hard.The situation faced by commercial-property owners may deteriorate even if the economy further improves. One or two extra percentage points of growth will bring back few tenants. But the resulting increase in interest rates will put pressure on businesses unable to refinance the debt they accumulated at low rates in the covid-19 pandemic. Newmark, a property-services firm, identifies a maturity wall of $626bn in troubled commercial-property debt (where the senior debt of the borrower is worth 80% or more of the value of the property) that will come due between 2023 and 2025. Without a let-up in the bond market, plenty of companies will smash into the wall.Problems in commercial property could spread. Many American lenders have extended credit to the industry. In early August Moody’s downgraded ten small and mid-sized institutions and placed several larger ones on watch for downgrades. Banks with under $10bn in assets have exposure to commercial real estate worth 279% of their equity cushions, the rating agency noted, compared with 51% for those with over $250bn.The problems that felled Silicon Valley Bank, First Republic Bank and Signature Bank in March and April have not gone away, either. Deposits across the industry have barely recovered since their tumble in the spring, up by 0.02% a week on average over the past four months, compared with 0.13% average weekly growth over the past four decades. The allure of the bond market, where high yields offer an alternative to low-interest bank accounts, means the pressure is hardly letting up.For less leveraged firms, workers and stock investors, the economic porridge seems to be at just the right temperature. Even in the residential property market, which provided the spark for the global financial crisis, owners have largely shrugged off the Fed’s rapid interest-rate increases. But the parts of the American market most vulnerable to rising refinancing costs are faced with an unappetisingly cold bowl of porridge. A Goldilocks outcome for some is a bearish nightmare for others. If Treasury yields stay high, it could become increasingly hard to keep the two realities separate. ■ More

Safra Catz, CEO of Oracle Corporation, rings the opening bell at the New York Stock Exchange (NYSE) in New York City, U.S., July 12, 2023. 
Brendan Mcdermid | Reuters

Check out the companies making headlines before the bell.
Oracle — The software giant rose 2.7% after UBS upgraded Oracle to a buy from neutral, saying that shares could rally another 20% due to artificial intelligence-related tailwinds.

AT&T, Verizon — AT&T and Verizon rose about 1.6% each after Citi upgraded the telecommunication companies to buy, citing a stabilizing competitive wireless environment. The firm also said that their current valuations may be over discounting remediation costs related to lead-covered cables.
Best Buy — Best Buy rose about 1.3% after topping Wall Street’s fiscal second-quarter expectations on the top and bottom lines. The retailer reported adjusted earnings of $1.22 a share, ahead of the $1.06 expected by analysts polled by Refinitiv. Revenues came in at $9.58 billion, versus the $9.52 billion anticipated. Best Buy also trimmed its full-year revenue outlook.
Big Lots — Shares of the home discount retailer surged 14% after posting a smaller-than-expected loss. Big Lots reported a loss of $3.24 per share, versus the $4.11-loss per expected by analysts polled by FactSet. Revenue came in at $1.14 billion, ahead of the $1.10 billion anticipated.
PDD Holdings — U.S.-listed shares of the Chinese e-commerce company popped nearly 14% after PDD reported second-quarter earnings that surpasses Wall Street’s expectations. PDD also said it saw a “positive shift in consumer sentiment” during the second quarter.
3M – Shares of the industrial products maker were higher by less than 1% in early morning trading after the company agreed to pay more than $6 billion to settle lawsuits by current and former U.S. military service members over defective combat earplugs.

Heico — The engine and aircraft part manufacturer lost more than 5% even after topping fiscal third-quarter revenue expectations. Heico reported revenue of $723 million for the previous quarter, ahead of the $702 million expected by analysts polled by Refinitiv. Heico did report a decline in operating margins to 20.7% from 22.6% a year ago.
Nio — Nio’s stock lost more than 6% before the bell after the Chinese electric vehicle company reported a wider-than-expected loss quarterly loss. Deliveries also declined from the year-ago period.
J.M. Smucker — Shares of the snack food company rose more than 2% after J.M. Smucker’s fiscal first-quarter earnings topped expectations. The company reported $2.21 in adjusted earnings per share, while analysts were looking for $2.02 per share, according to FactSet’s StreetAccount. J.M. Smucker’s revenue of $1.81 billion did come in under estimates of $1.84 billion, but the company raised its earnings guidance.
BYD — The Chinese automaker’s U.S.-traded shares rose more than 2% Tuesday premarket, a day after it announced a 204.68% jump in net profit for the first half of 2023.
Toyota Motor — U.S.-listed shares of Toyota Motor lost about 1% after the automaker halted production at its assembly plants in Japan due to a system malfunction.
— CNBC’s Hakyung Kim, Tanaya Macheel and Jesse Pound contributed reporting More